The TV mega-merger loophole

How much control should one company have over America’s television stations?

For more than a decade, this has seemed like a settled question: In 2004, Congress limited the national reach of a television-group owner to 39 percent of U.S. homes. This limitation was put in place to keep the major networks, who are also station-group owners, from having too much control over local news.

This was actually an increase from the limit set by Ronald Reagan’s Federal Communications Commission, which first instituted the ownership cap in 1985 at 25 percent. Since then, the idea that no one company should control a dominant number of TV stations has developed a strong bipartisan constituency. Democrats and Republicans have long agreed that a handful of TV networks operating out of New York should not control most of the nation’s TV stations and their local news programming.

But when Sinclair Broadcast Group proposed merging with Tribune Media in May 2017, it would have created a new company that reached 72 percent of all TV households in the U.S. This enormous reach was not what Congress intended. My company, Newsmax, along with many organizations on both sides of the political spectrum, opposed the Sinclair-Tribune merger.

The merger was dropped, but it is still too early to celebrate. Tribune is apparently for sale again, with its 43 stations back on the market, and we could soon face another titanic television conglomerate if the FCC doesn’t act soon to make clear that there are limits on how dominant a TV station group can be.

What happened to the old limits? Sinclair was able to bid for Tribune and attempt to reach 72 percent of the country because in April 2017 the FCC re-instituted something called the UHF discount.

The UHF discount was an archaic regulatory rule that allowed television stations broadcasting on UHF frequencies to be counted at half their actual reach. In the past, this made sense,since UHF spectrum was considered to be inferior to VHF spectrum. Technology, however, has now made the rule obsolete because, since the 2009 transition to digital broadcasting, UHF signals are no longer inferior to VHF spectrum. In fact, UHF is now the preferred broadcasting frequency for digital television.

Shortly after the switch to digital—sometimes called the “DTV transition”—the FCC began a rulemaking to eliminate the UHF discount. According to the FCC, “the transition to DTV … undermine[d] the basis for the UHF discount” because it was “premised on the constraints of old technology.” The FCC formally eliminated it in 2016.

But then, inexplicably, the discount was restored in 2017—a move widely viewed as providing a loophole for Sinclair to skirt the ownership limit. If you “discount” the value of UHF stations, you can nearly double the size of the audience a single broadcaster is allowed to reach without the consent of Congress or a lengthy FCC proceeding to determine whether it’s in the public interest.

Public interest groups immediately filed for a stay of the decision and appealed to the federal court in the District of Columbia, arguing that it should nix the new UHF discount as inappropriate and dishonest. In July, the court ruled that the petitioners did not have jurisdiction in the case, without discussing the merits of their arguments. For now, the UHF discount remains in place, but its justification remains questionable.

Fortunately, the FCC heard the message of people like myself and many others concerned about the ownership limitation, and its chairman, Ajit Pai, began a new process to permanently eliminate the UHF discount, while simultaneously raising or eliminating the national television ownership cap.

During the comment period that ended in March, Newsmax argued that if the cap was going to increase, a fair proportion would be about 50 percent of U.S. homes. Any number north of that would endanger competition and give large television station groups leverage to increase their rates over cable operators, thereby increasing consumer costs. These station groups would also have tremendous power to promote the cable channels they own over independent programmers like Newsmax, further undermining competition and diversity.

This issue should be resolved now. In addition to Tribune’s stations, Cox Media Group has indicated its 14 local TV stations are up for sale, and many station groups already butting up against the 39 percent cap are circling these assets. Before any more acquisitions and mergers get underway, the FCC needs to communicate a clear national standard—one that respects the ideas of localism, competition and diversity.

Congress also has an important role and in the past has intervened to set the standard.

My own view is that the FCC should come up with the limitation number, and then Congress should ratify a new set of ownership restrictions. Until then, any new merger approvals should be based on the old limitation of 39 percent. The FCC and Department of Justice should not approve a major television transaction similar to Sinclair-Tribune—one that uses a technicality to blow through the old limits—until a new national standard is ratified.

The principle of limited media ownership is one I will continue to fight for. If another megadeal is proposed that goes above a 50 percent limitation, Newsmax will oppose it, as we did with the Sinclair transaction. After all, the best way to combat fake news is with more news, and more viewpoints. Diversity of ownership and reasonable limitations ensure that balance.

Christopher Ruddy is the CEO of Newsmax Media, which operates Newsmax.com and the Newsmax cable television channel.